At startups, People and Finance teams can’t afford to work in silos. Why? Because every people decision is a financial decision, and every financial decision impacts people. But too often, these teams operate separately—leaving money (and talent) on the table.
Let's start with a story...
Imagine a People team builds a 12-month hiring roadmap based on ambitious headcount targets. Roles are approved, recruiters are hired, and candidates are starting to be signed.
But, they didn't ask about how weaker than expected revenue over the past quarter and a semi-annual re-forecasting process might impact runway and the hiring plan — and the finance team didn't offer up that info.
Six months in, the CFO hits the brakes. Half the open roles are frozen. Signed offers are rescinded. And the recruiting team? Overbuilt and demoralized, maybe even assisting with layoffs.
A lack of collaboration led to overproduction — or work that was done that didn't need to be done — that diverted valuable resources from other initiatives. Not to mention, morale and leadership trust challenges.
So, how do you avoid scenarios like this?
3 crucial moments for HR and Finance to team up
📅 Workforce planning
What: Workforce planning is the strategic process of aligning your organization’s long-term talent needs with business goals and budget.
When: Q4 (or equivalent on in your org's fiscal year)
How: Be a dynamic duo who helps to advise leadership. The finance team can help with benchmarks like spending ratios (e.g., G&A as a % of revenue) for similar size and stage companies while the HR team can do the same for staffing ratios (e.g., 1 product designer to 6-8 software engineers).
You should also work together to make sure the conversation isn't only about headcount, but also performance and productivity. Collaborate to gain an understanding of factors like revenue per FTE, quota:OTE ratio, quota attainment, revenue under management per CSM, etc. These metrics matter more than raw hiring numbers.
Then, work collaboratively with business partners to adapt "industry standards" and "best practices" to your company’s context. For example, if your company has a much higher percentage of support tickers per user than normal, your staffing on support and engineering likely needs to be higher than normal in the short-term.
💰 Headcount planning
What: Headcount planning is focused on how many roles you’ll need, when, in what locations, and at what cost.
When: Q4 (or equivalent on in your org's fiscal year), revisited quarterly
How: As we get into headcount planning, we're talking about staffing appropriately to meet time-bound company goals. Start by tying hiring plans to realistic revenue forecasts and runway, not aspirational growth targets. Associating hiring targets with pie in the sky growth targets leads to the over hiring and layoff scenario I shared at the beginning.
Make sure the HR team knows the forecast drivers for each line of business they partner with as well as when and why the forecasts might be re-evaluated. This helps them have more situational awareness to independently flag if the hiring plan might need to be adjusted if they're seeing signals that the drivers are weakening (e.g., their business partner shares churn is higher than forecast).
In turn, make sure the Finance team knows how to model new hire start dates based on the org's historical time-to-fill, ramp time, and productivity — not just industry benchmarks — to improve accuracy.
If you're a smaller team, you'll likely be more picky here, looking at time-to-fill by department. The bigger you get, the more likely you are to be looking at broader categories (e.g., technical vs non-technical vs sales roles).
📊 Compensation and benefits modeling
What: Compensation and benefits includes base salaries, bonuses and commissions, core and supplemental benefits like healthcare, equity, L&D budgets, etc.
When: Q4 (or equivalent on in your org's fiscal year) and when you receive annual benefit renewal quotes (e.g., health insurance rates)
How: Your business strategy should drive your talent strategy and your talent strategy should drive your compensation strategy. Here's a template to help define and refine your compensation philosophy and pay practices.
While your finance leader should certainly be looped in as the pay practices are being developed, they're an even more important partner in operationalizing and iterating on them.
In particular, you should partner together on modeling out the following: merit-based performance increases, promotion increases, market adjustments, (if applicable) international inflation adjustments, signing and retention bonuses, performance bonuses and commissions, benefits contributions and utilization, and expected benefits renewal rates.
HR teams tend to over-index on the "how much" money and not pay enough attention to when that money will be paid out, or the cash flow implications. Finance teams tend to roll-up numbers for simplicity to the point that it makes it difficult for their HR partners to use ("but, how much of that is for raises vs promotions?").
Starting the conversation with how each of you needs to use the budget (and any supplemental models) can be really helpful.
📌 The Four-T Playbook: Tip, Trick, Tactic, or Template
Every edition, I’ll share a proven insight to help you scale faster, smarter, and more efficiently.
👉 Template: Pay for performance HR <> finance discussion template
Use this template to see how HR and Finance teams can have conversations about your categories, payout timing, assumptions, and goals prior to financial modeling. This helps you not get lost in numbers.
Final thoughts:
Finance doesn’t exist to say "no" to headcount requests. HR doesn’t exist to hire and performance manage in a vacuum. Together, you’re not just cutting costs or filling roles—you’re shaping how your company grows.
The best People leaders I know? They speak the language of finance.
The best CFOs I know? They care deeply about talent.
That’s where the magic happens.
Until next time,
Melissa
